Energy Dialogue and U.S.-Russian Relations

On December 3, 2013 American and Russian participants in a day-long discussion of the U.S. domestic energy revolution broadly agreed that soaring natural gas and oil production in the United States have produced considerable benefits for the country.

On December 3, 2013 the Center for the National Interest brought together top U.S and Russian experts on energy and foreign policy. Speakers included Charles K. Ebinger, Director of the Energy Security Initiative at the Brookings Institution; Vladimir Feygin, President of the Institute of Energy Finance in Moscow; Edward Chow, Senior Fellow on Energy and National Security at CSIS; Nodari Simonia, Professor at the Moscow State Institute for International Relations; Paula Dobriansky, Senior Fellow at Harvard University’s JFK Belfer Center and former Under Secretary of State for Democracy and Global Affairs; Tatiana Mitrova the Head of the Oil and Gas Department at the Energy Research Institute of the Russian Academy of Sciences; and Daniel Russell, the President of the U.S.-Russia Business Council. The Center organized the program in cooperation with Russia’s Institute for Democracy and Cooperation and its Director, Andranik Migranyan, served as a moderator and a speaker.

U.S. participants acknowledged uncertainties surrounding America’s ability to maintain remarkable new domestic production of shale gas and tight oil, which is catapulting the United States to an unexpected position as the world’s leading producer of both oil and gas, particularly the risk that an accident or the discovery of significant environmental consequences could change public attitudes toward hydraulic fracturing (fracking) and lead to more restrictive policies at the federal, state and local levels. Nevertheless, they were generally optimistic that the United States would meet production levels forecast in major analytical studies like those prepared by the International Energy Agency and the U.S. Energy Information Administration.

Russian participants were more skeptical, though also divided—only one of the Russian speakers fundamentally questioned U.S. shale gas production and argued that current production levels could fall significantly. This speaker—Nodari Simonia—argued that current U.S. gas prices fail to incorporate the “social costs” of shale gas production and disputed whether the United States was indeed experiencing an energy “revolution” since the horizontal drilling and fracking technologies underlying it had been known for decades, in both the United States and the Soviet Union, and only their combination was really new. Simonia also stressed the very substantial water used in fracking and the risks posed by industrial chemicals mixed into it.

Both U.S. and Russian speakers were cautious in assessing the international prospects for shale gas and tight oil. Charles Ebinger pointed out that in addition to China, countries like Canada, Ukraine, Australia, Argentina, Peru, South Africa and Algeria all have potentially important shale gas reserves. However, he said, few nations have access to water comparable to the United States and infrastructure and transportation costs can be high. Nevertheless, Tatiana Mitrova suggested that new technologies under development could sharply reduce water consumption and simplify fracking in not only the United States, but also China (which has vast shale gas reserves, even greater than those in America, but much less water) and other countries.

At the same time, Ebinger said, U.S. limits on natural gas and crude oil exports constrain the global market impacts of rising American production. Edward Chow agreed, pointing out that U.S. natural gas exports to countries like Japan were likely to be small relative to their overall import needs. Still, Chow said, U.S. exports have been making international markets more competitive and are increasing pressure to de-link natural gas prices from oil prices in contracts. Dan Russell agreed. In Europe, redirection of liquified natural gas exports from the Middle East intended for the United States has already pushed prices down, though these shipments are now increasingly commanding higher prices in Asia. In this context, the prospect of natural gas imports from the United States can strengthen negotiating leverage for Japan and other consumers, Chow concluded.

In assessing geopolitics impacts of the U.S. energy revolution, Mitrova argued that new U.S. oil and gas production has forced changes in markets, but that markets have now stabilized. Accordingly, she said, further significant impacts from shale gas are unlikely. The principal consequences have been strengthened “illusions” among some consumers—such as the Europeans and the Ukrainians, who think that they can reduce their dependence on Russia but are in practice unlikely to manage this because Russia’s gas exports are still more attractive commercially than other options. Mitrova and Paul Saunders both saw scope for new tensions between the United States and its allies in the Middle East; as Saunders put it, new U.S. production won’t end American imports from the region, but has encouraged many politicians to believe that it will and to say as much to the American people. This may make it harder for U.S. officials to win public support for active engagement in the Middle East.

Saunders also noted that if new shale gas exploration projects in Ukraine succeed, Ukraine could have enough gas to supply its own needs for 90 years or to supply itself and several of its smaller Central European neighbors for 50 years. On one hand, this would strengthen economies and reduce dependence on Russia; on the other hand, he pointed out, it would remove foreign policy constraints on these governments in dealing with Moscow and could contribute to heightened tensions (including within the European Union, where these governments have been the most skeptical toward Russia.) Saunders further commented that the principal gas exploration projects are in western Ukraine and that if domestic gas produced there eventually began to compete with coal from eastern Ukraine, it could reinforce existing divisions between ethnic Ukrainians and ethnic Russians in the country.

Focusing on the U.S.-Russia relationship in this context, Andranik Migranyan and Dan Russell broadly agreed that the United States and Russia are “doomed to cooperate” despite their differences in many areas. In Russell’s view, Washington and Moscow should turn their attention to economic issues as focus of their cooperation as these issues represent “the future” in the relationship. Still, he said, the U.S. energy revolution does create some challenges—not least of which, the fact that American energy companies have enormous new investment opportunities in the United States and may be less inclined to pursue projects overseas. Nevertheless, Russell continued, Russia will remain in a strong position in international energy markets due to its vast resources. Migranyan contended that the United States faces many domestic and international problems and, as a result, the Obama administration has pursued a cooperative relationship even at moments of great stress. For example, he said, after cancelling a formal Obama-Putin meeting at the G-20 Summit in St. Petersburg over the Edward Snowden affair—and insisting that the two men would not even meet on the sidelines of the event—the White House eventually did arrange an informal encounter.